Explosive demand for artificial intelligence is driving innovation to boost the speed and resilience of data center networks.
On June 12, a sudden data center outage hobbled Google’s, Microsoft’s and Amazon’s cloud service operations, grinding a lot of searching, chatting and streaming to a halt.1 The root cause: a change in the way data traffic was routed through a network of data centers, operated by a different company, called Cloudflare. Within seconds, it became painfully clear just how much we all rely on data center networks to keep our digital lives up and humming—and how contagious any hiccups can become.
The arrival of artificial intelligence (AI) has intensified the race for network resilience and reliability. To understand what’s at stake—and where attractive investment opportunities may lie—think of data center networks as transportation systems, with highways, streets, lights and hubs. Just as those systems keep motor traffic flowing, so do the optical fibers, copper cables and switches zip trillions of bytes of data through the digital ecosystem.
We believe innovation abounds within and across those networks, if you know where to look. Here are some key areas and players to keep an eye on:
Copper Cables: Evolving Country Roads in Data Centers
Within data centers, the first leg of data transmission often relies on copper cables, which act as the “country roads” connecting servers and switches over short distances. As AI and GPU clusters proliferate, traditional solutions like passive copper cables, which are simple conductors without embedded electronics, are increasingly challenged by bandwidth demands and signal integrity issues.
Addressing these limitations, Active Electrical Cables (AECs) have emerged as a transformative upgrade. Equipped with advanced digital signal processing (DSP) chips, AECs actively clean and amplify data signals, enabling reliable, high-speed transmission over distances up to 7 meters. This innovation is crucial for supporting next-generation workloads, ensuring robust performance and scalability as data center architectures evolve to meet the needs of AI-driven applications.
Key players: Credo, Bizlink, and Amphenol are leading the charge, with high-speed cable sales expected to triple by 2029, reaching $6.7 billion.2
Optical Networking: The AI Autobahn Accelerates
As data travels beyond the reach of copper cables, it enters the high-speed “Autobahn” of optical networking. Fiber-optic cables transmit data using pulses of light at blazing speeds, and recent advancements have pushed data rates to 800 gigabytes (800G) or even 1.6 terabit (1.6T) per second.
A major technological upgrade is the shift from 100G DML (Directly Modulated Laser) chips to 200G EML (Electro-Absorption Modulated Laser) chips. EMLs offer advantages over DMLs due to their ability to maintain stable wavelengths during high-speed operations and their lower chromatic dispersion.
However, as data center workloads continue to scale, even the most advanced EML chips are expected to approach their practical limits for bandwidth and efficiency as speeds near 1.6T per second. This challenge is driving the search for the next breakthrough in optical networking.
Key players: Fujikura (which makes fiber-optic cables) and Innolight, Coherent and Sumitomo Electric (which make “transceivers” that convert electrical signals into light signals than can traverse those cables).
Co-Packaged Optics (CPO): The Next-Generation Express Lane
The future of data center networking lies with Co-Packaged Optics (CPO), a technology that integrates optical transceivers directly with switch chips. This architecture eliminates the need for traditional electrical-to-optical conversions at the board edge, reducing bottlenecks and dramatically increasing efficiency. CPO supports ultra-high bandwidths up to 3.2T per second, well beyond the limits of current EML chip technology.
By merging optics and silicon, CPO enables seamless, low-latency connections directly within racks, representing the next stage in data infrastructure evolution. Industry research firm LightCounting predicts CPO will become mainstream for 1.6T and faster connections by 2028–2029, with more than 10 million 3.2T CPO ports expected by 2029.3
Key players: Broadcom and Marvell are architecting the next gen CPOs and Nvidia’s Mellanox is working with TSMC’s supply chain on CPO to be ready in 2027.
Together, these technologies are reshaping the digital landscape, ensuring data flow smoothly even as demand grows and complexity rises. With AI driving unprecedented volumes of traffic and raising the bar for speed and resilience, the need for robust infrastructure has never been greater.
